Working in real estate it's often that I hear crazy things people will say to be in a panic to try and avoid foreclosure of their home. What many consumers are not aware of is the fact that bankruptcy should be one of the last options you use before foreclosure on your home.
My goal as a foreclosure specialist is to do my best to try and prevent an already horrible situation from becoming worse. A foreclosure on your credit report will haunt you for 7-10 years after your filling. A foreclosure will raise your interest rates or prevent you from getting loans in the future. If you are in a bad situation now why would you still want to be dealing with the consequences of it for years to come?
Depending on your situation however, bankruptcy can outweigh the negative aspects in certain cases.
The main benefit of bankruptcy is the ability to set up a workout plan that allows you to get your payments back on track. Unfortunately, this process commonly known as forbearance is typically very expensive. Once you are caught up on your payments the bankruptcy can usually be dismissed.
The biggest problem many of my clients are facing is that even if they go through forbearance they are still unable to afford paying for their home. Hiring an attorney, paying for a bankruptcy and court costs can really add up. Why put your credit at stake and file bankruptcy when you could try a short sale first?
Short sales will not cost you any upfront fees and all realtor fees, title fees, etc. will be paid by your lender. Making decisions about your credit is a personal choice but I firmly believe in attacking situations head-on. A short sale will save your credit in the long term. My biggest objection I have had recently is that prospective clients are afraid of receiving a deficiency judgment by their lender at the end of their transaction or a 1099.
If you short sale your primary residence you DO NOT have to pay taxes on the deficiency of your primary residence. We have several clients who have investment properties. In their case it is a matter of explaining the consequences of a 1099 vs. credit bankruptcy. Would you rather owe $5,000 in taxes (which the government has many great tax repayment plans) or would you rather affect your credit for 7-10 years and pay triple that amount in higher interest on future loans?
There are so many benefits to short sales I could go on forever, but I'm going to leave those benefits to another blog. Please feel free to call Travis or myself if you ever have any short sale questions!
Remember - If you need a place call Kase (or if you want to get rid of one too!)
Kase C. Ellers
Assistant Manager/Associate
RE/MAX Gold Partners
Direct: (407) 463-9315
